The dollar fell due to renewed bets for a 50 bps September Fed rate cut.
Several Bank of Japan policymakers drummed up support for more rate hikes.
Investors will focus on the FOMC and BoJ policy meetings.
The USD/JPY weekly forecast indicates a potential collapse if the Fed cuts by 50-bps and the Bank of Japan delivers a hawkish meeting.
Ups and downs of USD/JPY
USD/JPY has fallen and closed on a bearish candle in the past week. This came as the dollar collapsed while the yen strengthened. The dollar fell due to renewed bets for a 50 bps rate cut towards the end of the week. Initially, inflation reports had pointed to a smaller cut.
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On the other hand, the yen rallied as several Bank of Japan policymakers drummed up support for more rate hikes.
Next week’s key events for USD/JPY
Next week, investors will focus on the FOMC policy meeting and retail sales data from the US. At the same time, the Bank of Japan will hold its policy meeting on Friday. Investors have waited for the September Fed meeting for a long time. The Fed will likely pivot at this meeting, implementing its first rate cut.
However, investors are unsure whether this will be 25 or 50 bps. A small rate cut could boost the dollar as it would precede a gradual pace for easing. On the other hand, a large rate cut would sink the greenback.
Meanwhile, the Bank of Japan might maintain rates for now. However, economists are pricing another rate hike before the year ends.
USD/JPY weekly technical forecast: Bullish divergence near 140.07
USD/JPY 4-hour chart
On the technical side, the USD/JPY price has made a new low in the downtrend after breaking below the 144.00 support level. Bears have remained in charge since the price broke below the 22/SMA, and the RSI dipped below 50. Since then, the price has declined steeply and paused near the 140.07 support level.
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However, bears have weakened with time, and the price started consolidating near the 22-SMA. At the same time, the RSI has made a bullish divergence, indicating fading bearish momentum. Therefore, the tides might soon change. If bears fail to breach the 140.07 support, the price might reverse to challenge the 22-SMA and the 144.00 level.
A break above the SMA would indicate a shift in sentiment. On the other hand, if the SMA holds firm, the downtrend might continue.
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Since the August swing low of 1.875, natural gas has had one leg up followed by a minor pullback to 2.125 (C). The pullback completed a 38.2% Fibonacci retracement and then reversed higher. Finding support after a relatively minor pullback is a sign of strength. This week’s bullish continuation above the 2.30 interim swing high confirmed the second leg up. The rise also triggered a double bottom bullish reversal pattern as the neckline is 2.30 swing high. Therefore, the technical clues point to a continuation higher.
Second Leg Up off August Low Targets 2.54
A rising ABCD pattern is shown on the chart with an initial target of 2.54. That is a potential pivot level as there will be symmetry in price between the two swings in the pattern. The 50% retracement is near to that target at 2.52. As of today, the 20-Day MA has begun to cross above the 50-Day MA, another sign that the trend is strengthening. This doesn’t mean that natural gas goes straight to higher targets, but it has the potential to do so eventually.
Weekly Breakout Confirmed Above 2.29
Another indication for the near term is related to where natural gas ends in the week. A bullish breakout in the weekly chart also occurred on the move above 2.30. The high last week was 2.29 So, a weekly close above 2.29 will confirm the breakout on the weekly time frame and suggests that the buyers remain in charge. Further, a close today above 2.29 will be the highest weekly close in nine weeks. Nevertheless, natural gas has advanced off the August bottom and it would not be surprising to see a a short rest before it is ready to proceed higher.
For a look at all of today’s economic events, check out our economic calendar.
The Pound Euro (GBP/EUR) exchange rate edged lower on Wednesday following the UK’s latest GDP release.
At the time of writing GBP/EUR was trading at €1.1847, down approximately 0.2% from Wednesday’s opening rate.
The Pound (GBP) faced a downturn following the release of the UK’s GDP figures on Wednesday.
Contrary to the anticipated growth of 0.2%, the economy showed no growth in July, deviating from the previous month’s 0.2% expansion.
Additionally, July’s industrial output in Britain saw a decline of 0.8%, contrary to the expected increase of 0.3%. Manufacturing output also declined by 1%, falling short of the forecasted 0.2% rise.
However, despite signs of a weakened economic landscape in the UK, analysts believe that these figures will not heavily influence the Bank of England’s current trajectory towards policy easing.
Luke Bartholomew, Deputy Chief Economist at abrdn, noted:
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‘The broader trend remains solid, although it is likely that the underlying pace of growth will slow somewhat over the second half of the year. Certainly, there is no reason yet for the Bank and England to feel it needs to speed up the pace of rate cuts, and we expect the Bank to keep interest rates on hold next week.’
As a result, the Pound’s depreciation was minimal, with only slight losses noted against major currencies on Wednesday.
The Euro (EUR) displayed limited fluctuations against the majority of its significant trading partners on Wednesday, as market participants held back from making substantial moves ahead of the European Central Bank’s (ECB) highly anticipated interest rate decision.
The ECB is set to announce its decision on Thursday afternoon, with market consensus leaning heavily towards a 25 basis-point reduction in interest rates. This expectation has been largely priced into the market, reflecting a cautious optimism among investors.
Michael Field, Strategist at Morningstar, commented:
‘With 85% of economists polled expecting a 25 basis point rate cut by the ECB, it’s safe to say the markets will be disappointed if this doesn’t happen. When expectations are so unified though, generally it’s for a reason. In fact, two reasons that we can clearly identify.’
Amid a series of lacklustre economic reports from the Eurozone, the anticipated confirmation of a rate cut by the ECB could potentially lead to a weakening of the Euro against its global counterparts. Investors are closely monitoring the situation, gauging the potential impacts on the currency’s performance in the near term.
Looking forward, markets are keenly awaiting to see if the ECB opts for a rate cut, which could lead to a depreciation of the Euro. Conversely, should the ECB surprise markets by holding rates steady, the euro might find unexpected strength against its counterparts.
Looking to the Pound, a lack of substantial economic releases in the UK could leave GBP somewhat adrift, potentially causing Sterling to trade erratically or without clear direction.
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The Pound Sterling staged a late rebound against the US Dollar, with 1.3000 tested.
GBP/USD awaits a fresh directional impetus from the UK CPI data and Fed, BoE decisions.
Pound Sterling buyers fight back control above 21-day SMA, as the daily RSI flips bullish.
The Pound Sterling (GBP) stalled its correction from over two-year highs against the US Dollar (USD) and staged an impressive comeback, with the GBP/USD pair having tested the critical 1.3000 threshold.
Pound Sterling – A tale of two halves
GBP/USD witnessed good two-way price action, correcting sharply to a three-week low of 1.3002 in the first half of the week only to recover the weekly losses in the latter part. The sentiment around the pair was mainly driven by the dynamics of the US Dollar. The Greenback continued to remain at the mercy of the market’s expectations on the size of the interest rate cut by the US Federal Reserve (Fed) in the upcoming week.
The August US labor market data fuelled a late recovery in the USD against its major rivals last week, which extended well into this week and weighed heavily on the GBP/USD pair. US Nonfarm Payrolls rose by 142,000, missing a 160,000 gain estimated. On the other hand, the Unemployment Rate edged down to 4.2%, in line with expectations.
Discouraging US employment data rekindled worries about a possible economic downturn and lifted the haven demand for the Greenback. Markets continued to run for cover in the buck, bracing for the critical US inflation data on Wednesday. Data published by the US Bureau of Labour Statics (BLS) showed Wednesday that the CPI rose 0.2% MoM in August, aligning with the expected 0.2% print. US August core CPI jumped 0.3% MoM vs. estimates of 0.2%. Sticky underlying inflation figures prompted markets to rule out an outsized Fed rate cut this month.
The Pound Sterling also felt the heat from softer UK pay growth and Gross Domestic Product (GDP) data released on Tuesday and Wednesday respectively. Average Earnings excluding Bonus in the UK rose 5.1% 3M YoY in July versus a 5.4% growth seen in June. The UK economy showed no growth over the month in July after stalling in June, data from the Office for National Statistics (ONS) showed Wednesday, missing the expected 0.2% growth.
These fundamental factors dragged GBP/USD to the lowest level in three weeks to just above the 1.3000 level. Buyers, however, managed to defend that key level, as the US Dollar saw a fresh selling wave on dismal US Producers Price Index (PPI) and Jobless Claims data, which reinforced bets of a 50 basis points (bps) rate reduction by the Fed at its September 18 policy announcement.
Annually, the headline PPI rose 1.7% in August, compared to the market consensus of a 1.8% print. The core PPI increased by 2.4% YoY in the same period, below the estimate of 2.5%. Meanwhile, the Initial Jobless Claims came in at 230,000 for the week ended Sept. 7, up 2,000 from the previous period while aligning with the forecast. Dismal US data combined with the Wall Street Journal (WSJ) article on the Fed’s rate cut dilemma brought back bets for a jumbo cut at the September meeting, smashing the Greenback while propping up GBP/USD back above 1.3100.
Markets are now pricing in a 43% chance of the Fed cutting rates by 50 bps, up from 27% a day earlier, with a 57% probability of a 25 bps cut, the CME Group’s FedWatch tool showed. Increased dovish Fed expectations exacerbated the US Dollar’s pain on Friday. The last data release from the US showed ahead of the weekend that the consumer confidence improved slightly in early September, with the preliminary University of Michigan’s Consumer Sentiment Index edging higher to 69 from 67.9 in August. This reading came in above the market expectation of 68 but failed to help the USD stage a rebound.
Week ahead: All eyes on UK CPI data, Fed and BoE verdicts
All eyes now turn to the high-impact UK CPI inflation report and the all-important Fed and BoE policy announcements, which will determine the next directional move in the GBP/USD pair.
It’s a quiet start to the big central banks’ week, with no relevant data to be released on Monday. Tuesday will feature the US Retail Sales data while the UK docket remains data-dry.
Wednesday is a busy one, with the UK inflation data slated for release before the key Fed verdict and Chairman Jerome Powell’s press conference.
It’s not a ‘Super Thursday’, as the BoE will only announce its rate decision without the update projections and Governor Andrew Bailey’s presser to follow. That same day, the US calendar will see the publication of the weekly Jobless Claims, Existing Home Sales and Philly Fed Manufacturing data.
On Friday, the UK will release the Retail Sales data, as traders will look to a speech from BoE policymaker Cathrine Mann.
Fed policymakers will also return to the rostrum on Friday, as the Fed’s ‘blackout period’ comes to an end.
GBP/USD: Technical Outlook
As observed on the daily chart, the GBP/USD pair defied bearish pressures and managed to find its footing above the key support at 1.3045 (July 17 high), having tested bids briefly at 1.3000.
On the road to recovery, the pair recaptured the 21-day Simple Moving Average (SMA) at 1.3119 on a daily closing basis, negating the bearish outlook in the near term.
Adding credence to the renewed upside, the 14-day Relative Strength Index (RSI) has regained the 50 level, currently near 58.00.
On the upside, GBP/USD must crack the falling trendline resistance at 1.3218 before aiming for the 29-month high of 1.3266.
Further up, Pound Sterling buyers will find the next relevant resistance levels at the 1.3300 round level and the 1.3350 psychological barrier.
Should buyers face rejection at the abovementioned trendline barrier at 1.3218, a correction could unfold toward the July 17 high of 1.3045.
A failure to sustain above that level could trigger a fresh decline toward the 50-day SMA at 1.2964.
The next relevant cushion aligns at the March 8 top of 1.2894, a break below which the 100-day SMA support at 1.2819 will come into play.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Former Fed official Bill Dudley said that there was a strong case for a 50 bps rate cut.
The likelihood of a 50 bps rate cut shot up from 28% to 45%.
BoJ board member Naoki Tamura noted that the upside risk to inflation was increasing.
The USD/JPY outlook shows a free-falling dollar as markets move to price in a higher likelihood of a super-sized Fed rate cut next week. At the same time, the yen strengthened as more Bank of Japan policymakers took on a hawkish tone.
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On Thursday, the dollar fell to a fresh low for the year after reports that the Fed might consider a 50 bps rate cut at next week’s meeting. Moreover, former Fed official Bill Dudley said that there was a strong case for a 50 bps rate cut. As a result, the likelihood of a 50 bps rate cut shot up from 28% to 45%. Data on Wednesday showed that core consumer inflation beat expectations in August. Therefore, market participants increased the likelihood of a 25 bps rate cut, boosting the dollar.
Furthermore, data on Friday revealed that wholesale inflation was higher than expected. Recent data has pointed to a gradual pace for rate cuts. However, the reports on Friday showed that policymakers might consider a bigger cut.
Meanwhile, the yen was strong after another policymaker supported more rate hikes. BoJ board member Naoki Tamura noted that the upside risk to inflation was increasing. Higher inflation creates the best conditions for the Bank of Japan to hike interest rates.
USD/JPY key events today
Investors do not expect any key economic reports from the US or Japan. Therefore, the pair might extend Thursday’s move.
USD/JPY technical outlook: Bearish momentum eases near the 141.02 support
USD/JPY 4-hour chart
On the technical side, the USD/JPY price is on the brink of falling below the 141.02 support level. The bias is bearish as the price has made a series of lower highs and lows, indicating a downtrend. However, the decline has slowed near the 141.02 key level. It is becoming harder for the price to make lower lows.
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At the same time, the RSI has made a bullish divergence, indicating fading bearish momentum. If this is the end of the road for bears, the price might bounce higher from 14.02 to challenge the 30-SMA resistance. A break above the SMA would confirm a shift in sentiment. On the other hand, if bears remain in charge, the price will stay below the SMA.
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EUR/USD continues to push higher after posting strong gains on Thursday.
Technical buyers could take action in case the pair flips 1.1100 into support.
European Central Bank lowered the benchmark interest rate by 25 basis points.
After closing the first three days of the week in negative territory, EUR/USD gathered bullish momentum on Thursday and registered strong gains. The pair continues to edge higher toward 1.1100 in the European morning on Friday.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the Swiss Franc.
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF
USD
-0.05%
-0.11%
-1.24%
0.06%
-0.73%
-0.18%
0.36%
EUR
0.05%
-0.11%
-1.12%
0.11%
-0.72%
-0.11%
0.40%
GBP
0.11%
0.11%
-1.13%
0.23%
-0.61%
-0.02%
0.50%
JPY
1.24%
1.12%
1.13%
1.30%
0.52%
1.04%
1.79%
CAD
-0.06%
-0.11%
-0.23%
-1.30%
-0.75%
-0.26%
0.46%
AUD
0.73%
0.72%
0.61%
-0.52%
0.75%
0.59%
1.09%
NZD
0.18%
0.11%
0.02%
-1.04%
0.26%
-0.59%
0.53%
CHF
-0.36%
-0.40%
-0.50%
-1.79%
-0.46%
-1.09%
-0.53%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
The European Central Bank (ECB) lowered the benchmark interest rate, the deposit facility, by 25 basis points (bps) to 3.5% as expected. The ECB also lowered interest rates on the marginal lending facility and the main refinancing operations by 60 bps. “The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction,” the ECB noted in the policy statement. In the post-meeting press conference, ECB President Christine Lagarde refrained from hinting at the timing of the next rate cut.
Although the ECB event failed to provide a boost to the Euro, the renewed selling pressure surrounding the US Dollar (USD) helped EUR/USD turn north.
On a yearly basis, the Producer Price Index (PPI) rose 1.7% in August in the US, down from 2.1% in July and below the market expectation of 1.8%. The probability of a 50 bps Federal Reserve (Fed) rate cut in September climbed above 40% after this data, per CME FedWatch Tool, and triggered a USD selloff.
The US economic calendar will feature the University of Michigan’s Consumer Sentiment Survey for September, which is unlikely to influence the USD’s valuation.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart climbed above 60 and EUR/USD rose slightly above the 100-period Simple Moving Average (SMA), reflecting a buildup of bullish momentum. In case the pair clears 1.1090-1.1100 resistance area (100-period SMA, Fibonacci 23.6% retracement of the latest uptrend), it could target 1.1160 (static level) and 1.1200 (end-point of the uptrend) next.
On the downside, 1.1060 (50-period SMA) aligns as first support before 1.1040 (Fibonacci 38.2% retracement) and 1.1020 (200-period SMA).
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
In my daily analysis of the Forex world, the GBP/JPY pair has caught my attention.
All things being equal, this is a pair that is highly sensitive to risk appetite, and therefore you need to pay close attention to the market in general, as the ¥185 level is very important from a support standpoint.
Ultimately, the market had formed a massive hammer during the trading session on Wednesday, only to turn around and show signs of strength during the Thursday session.
Is this a floor?
The question at this point in time will be whether or not there is going to be a bit of a floor in the market in this general vicinity, but there are a lot of questions asked of the markets as to whether or not we are going to see people be willing to jump in and take advantage of any type of “risk on behavior” that could come into the psyche.
Ultimately, this is a market that I think continues to see a lot of noise and it, which is typical of “The Dragon”, which is obviously one of the premier carry trade markets. If we can go higher, the market could send the British pound to the ¥190 level, perhaps even the 200-Day EMA indicator. On the other hand, if we were to turn around and break down below the bottom of the hammer from the Wednesday session, the market could really start to fall at that point in time, perhaps initially reaching the ¥180 level. Anything below there could send this market plunging much lower and it would probably have a lot to do with the risk out there falling apart, that could send a lot of panic into the market, which will be supercharged buy this market.
I think this is a situation where we continue to see a lot of instability, and therefore you need to be cautious with your position size, but it certainly looks like we are at least trying to turn around and go higher.
For now, the pair is in a consolidation phase, waiting for clearer direction from economic data or market catalysts.
Euro Faces Pressure Amid ECB Decision
The Euro (EUR) faces renewed pressure following the European Central Bank’s (ECB) decision to maintain its Main Refinancing Rate at 3.65%, as widely expected. However, the French Final CPI released earlier showed a slight miss, reinforcing concerns over inflation dynamics.
Meanwhile, industrial production data, due later today, is expected to decline by -0.6%, further weighing on economic sentiment.
Traders will also focus on the ECOFIN and Eurogroup meetings for policy insights. The outlook for the Euro remains uncertain, with any surprises in the upcoming data or statements likely to impact the currency’s short-term trajectory.
EUR/USD Technical Forecast
The EUR/USD is trading at $1.10775, up 0.11%, but facing resistance near $1.10910, a crucial pivot point. If the pair breaks above this level, we could see more bullish momentum toward the next resistance at $1.11201 and beyond.
Gold price extends Thursday’s bullish breakout ahead of US sentiment data on Friday.
The US Dollar keeps the red with Treasury bond yields on renewed bets of outsized Fed rate cut bets.
Gold price achieves a symmetrical triangle target at $2,560, with more upside likely as the RSI stays bullish.
Gold price is sitting at the highest level on record near $2,570, with buyers contemplating the next move amid sustained weakness in the US Dollar (USD) and the US Treasury bond yields. Traders now look forward to the US Michigan preliminary Consumer Sentiment data for fresh directives.
Gold price capitalizes on increased bets jumbo Fed rate cut
Gold price extended the early bounce on Thursday, as the tide turned in favor of buyers following the release of the US Producers Price Index (PPI) and Jobless Claims data, which reinforced bets of an outsized interest rate cut by the US Federal Reserve (Fed) interest rate cut next week.
The PPI increased 0.2% MoM in August, the US Bureau of Labor Statistics (BLS) said Thursday, beating the expected 0.1% increase. Excluding food and energy, PPI rose 0.3%, slightly hotter than the 0.2% consensus estimate. Annually, headline PPI rose 1.7%. Excluding food, energy and trade, the annual rate was 3.3%.
Meanwhile, the Initial Jobless Claims came in at 230,000 for the week ended Sept. 7, up 2,000 from the previous period while aligning with the forecast. Dismal US data combined with the Wall Street Journal (WSJ) article on the Fed’s rate cut dilemma brought back bets for a jumbo cut at the September meeting.
The US Dollar snapped its recovery mode and fell steeply on dovish Fed expectations, tracking the sell-off in the US Treasury bond yields.
The USD also bore the brunt of the resurgent demand for the Euro after the European Central Bank (ECB) on Thursday cut rates but President Christine Lagarde poured cold water on the expectations for another cut next month. The Hawkish cut by the ECB sent EUR/USD higher at the expense of the Greenback.
These factors added to the Gold price rebound, driving the bright metal to a fresh lifetime high of $2,560 on Thursday.
In Friday’s trading so far, Gold price witnessed a fresh leg higher and renewed record highs at $2,568, as Asian traders hit their desks and reacted to the overnight optimism surrounding the renewed dovish bets surrounding the Fed announcements next week.
However, buyers are catching their breath at the moment, as they turn slightly cautious heading into the weekend. Markets could resort to repositioning ahead of next week’s Fed policy meeting, fuelling a corrective decline in Gold price. Also, the end-of-the-week flows could play a pivotal role in the Gold price action alongside the release of the US Consumer Sentiment and Inflation Expectations data.
Gold price technical analysis: Daily chart
As observed on the daily chart, Gold price finally yielded a breakout after closing Thursday above the upper boundary of the three-week-old trading range, pegged at the previous record high of $2,532.
Meanwhile, the 21-day Simple Moving Average (SMA), now at $2,513, continued to offer strong support to Gold buyers.
With the range breakout in play, Gold price finally achieved the one-and-a-half-month-old symmetrical triangle target, measured at $2,560.
Despite the relentless rise, the 14-day Relative Strength Index (RSI) still holds in the bullish territory, with room for more upside until it prods the overbought boundary. The RSI indicator currently trades near 66.50.
If Gold price extends its bullish momentum, the next upside hurdle is seen at the $2,600 level, above which the $2,650 psychological level will be tested.
Should a correction ensue, the initial support is seen at the previous record high of $2,532, below which the 21-day SMA at $2,513 will be put to the test.
A sustained break below the latter is needed to challenge the key $2,500 threshold.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
USD/JPY trends will likely hinge on the Michigan numbers. Upward trends in the Michigan data could temper bets on Q4 2024 Fed rate cuts, possibly pushing the USD/JPY toward 143. However, investors should also consider Bank of Japan commentary and support for Q4 rate hikes.
Investors should remain alert. US consumer sentiment and central bank chatter will likely influence the BoJ and the Fed’s rate paths. Monitor real-time data, central bank insights, and expert commentary to adjust your trading strategies accordingly. Stay updated with our latest news and analysis to manage USD/JPY volatility.
USD/JPY Price Action
Daily Chart
The USD/JPY hovered below the 50-day and 200-day EMAs, confirming bearish price trends.
A USD/JPY breakout from the 142.500 level could indicate a move toward the 143.495 resistance level. Furthermore, a break above the 143.495 resistance level may give the bulls a run at 145 and the 145.891 resistance level.
Bank of Japan commentary and the Michigan Consumer Sentiment numbers require consideration.
Conversely, a break below the 141.032 support level and the September 11 low of 140.706 could indicate a fall through 140.
The 14-day RSI at 31.52 indicates a USD/JPY break below the 141.032 support level before entering oversold territory.
